Darwin's CBD office market is in good shape by national standards, according to new research from the Property Council of Australia.
The Property Council's Office Market Report, released for the Darwin market for the second consecutive year, shows Darwin CBD office vacancy at 7.2 percent in January 2011, down from 8.4 percent in 2010.
The total Australian office vacancy rate is 9.5 percent, down from 10.0 percent in 2010, while the total vacancy rate for CBD markets around the country has decreased from 9.0 percent in 2010 to a current rate of 8.6 percent.
The Report shows Darwin has a total of 207,391sqm of office space in its CBD. This figure is down from 218,213 in 2010, owing to the withdrawal of space for refurbishment and/or redevelopment.
“Commercial office buildings in Darwin are the engine rooms of the Territory’s economy," says Property Council Northern Territory Executive Director, Nick Bradley.
"The Territorians who occupy these buildings in the course of each business day add to the vibrancy of the city and support retail trade for CBD businesses."
The Property Council has been reporting on market conditions in Australian office markets since 1990 and, with the support of the NT Treasury, Darwin was included in this research for the first time in 2010.
Along with reporting on the quantum of office space, the Office Market Report includes information on vacancy levels in various grades of office stock.
Vacancies in A and B Grade space in Darwin's CBD are amongst the lowest in Australia. (A and B Grade space accounts for 82 percent of the total office market in the Darwin CBD).
However the reverse is true for C and D Grade space. C Grade vacancy was 15.4 percent, more than 3 percentage points higher than the Australian CBD average.
Nearly three-quarters of D Grade office space was withdrawn from the market over 2010, leaving less than 2,000 square metres - which makes the determination of vacancy rates susceptible to dramatic fluctuations based on individual tenancy movements.
“Not surprisingly, the Office Market Report indicates that the poorer the grade of office stock, the higher the vacancy rate. This presents a significant challenge for the industry," Mr Bradley says.
"With the Government requiring high quality space for its tenancies, demand is weak for lower quality office space, and many of the demands being made of the industry are tied to sustainability initiatives that are designed to lower the carbon footprint of a commercial office building.”
“Property owners must decide whether to undertake a significant refurbishment to bring the space up to the required standard, change the use of the building or demolish it to make way for something new."
"The costs associated with all of these options are substantial, and while the pursuit of ‘green initiatives’ is undoubtedly a necessary step in the right direction, the industry will require support from the NT Government to achieve the outcomes it is mandating.”
“Despite achieving higher sustainability standards, the industry needs two things - firstly, improvement of the end-point based energy efficiency targets for commercial buildings, and secondly, further incentive programs by Government to encourage retrofitting of existing commercial building stock."
The Office Market Report for Darwin identified positive outcomes for the property industry in spite of a relatively adverse economic climate.
While the market has experienced negative demand over the year to January 2011, Darwin still outperforms the other capital cities. Additionally, the outlook is bright, with more than 3,000 square metres of office space due to enter the market this year (more than 1.5 percent of the market’s current size), and a further 2,500 square metres of projects mooted.
